<PAGE>
As Filed with the Securities and Exchange Commission on August__, 1996
Registration No. 333-_____
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
--------------
FORM S-8
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DIPLOMAT CORPORATION
(Exact name of registrant as specified in its charter)
25 Kay Fries Drive
Stony Point, New York 10980
(address of principal executive
office including zip code)
Delaware 13-3727399
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
Diplomat Corporation
Stock Option Plan
1996 Non-qualified Stock Option Plan
(full title of plans)
---------------------
Sheldon R. Rose,
President
25 Kay Fries Drive
Stony Point, New York 10980
(914) 786-5552
(Name, address and telephone number of agent for service)
With Copies To:
Felice F. Mischel, Esq.
Joel W. Wagman, Esq.
Schneck Weltman Hashmall & Mischel LLP
1285 Avenue of the Americas
New York, New York 10019
(212) 956-1500
----------------
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<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------
Title of Proposed Proposed
Each Class Maximum Maximum Proposed
of Securities Amount of Offering Aggregate Amount of
To Be Shares To Be Price Per Offering Registration
Registered Registered(1) Security(2) Price Fee
- --------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock 200,000 $ 1.3125 $ 262,500 $ 90.52
(par value $.0001)
Common Stock 1,500,000 $ 1.3125 $1,968,750 $ 678.88
(par value $.0001)
Total 1,700,000 $2,231,250 $ 769.40
- --------------------------------------------------------------------------------------------------------
</TABLE>
(1) This registration also covers such additional number of shares, presently
undeterminable, as may become issuable under the Plans in the event of
stock dividend, stock splits, recapitalizations or other changes in the
Common Stock. The shares subject to this Registration Statement reflect the
shares available for issuance pursuant to options granted under the Stock
Option Plan (consisting of incentive and non-qualified stock option) and
the 1996 Non-qualified Stock Option Plan, all of which may be reoffered in
accordance with the provisions of Form S-8.
(2) The registration fee has been calculated pursuant to Rule 457 based on the
selling price of the Company's Common Stock on August 25, 1996.
1
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PART II
INFORMATION REQUIRED IN THE REGISTRATION STATEMENT
Item 3. Incorporation of Documents by Reference.
The following documents filed with the Securities Exchange Commission (the
"Commission") are incorporated in this Registration Statement by reference:
(1) The Registrant's Annual Report on Form 10-KSB for the fiscal year
ended December 31, 1995.
(2) The Registrant's Quarterly Reports on Form 10-QSB for the quarters
ended March 31, 1996 and June 30, 1996.
(3) Current Report on Form 8-K, dated as of January 9, 1996.
(4) Amendment No. 1 to Form 8-K, dated as of May 2, 1996.
All documents subsequently filed by the Registrant pursuant to Sections
12(a), 13(c), 14 and 15(d) of the Securities Exchange Act of 1934, prior to the
filing of a post-effective amendment which indicates that all securities offered
have been sold or which deregisters all securities then remaining unsold, shall
be deemed to be incorporated by reference in this Registration Statement and to
be part hereof from the date of filing of such documents.
Item 4. Description of Securities.
Not applicable.
Item 5. Interests of Named Experts and Counsel.
The validity of the securities registered hereby is being passed upon for
the Company by Schneck Weltman Hashmall & Mischel LLP, 1285 Avenue of the
Americas, New York, New York 10019.
Item 6. Indemnification of Directors and Officers.
The Company's Certificate of Incorporation and By-laws provide to the
extent permitted by the Delaware General Corporation Law, as the same may be
amended, a director of the Corporation shall not be liable to the Corporation or
its stockholder for monetary damages for breach of fiduciary duty of a director.
Item 7. Exemption from Registration Claimed.
Not applicable.
2
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Item 8. Exhibits.
4 1996 Non-qualified Stock Option Plan
5.1 Opinion of Schneck Weltman Hashmall & Mischel LLP
23.1 Consent of Feldman Radin & Company, P.C.
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Schneck Weltman Hashmall & Mischel LLP (included in
Exhibit 5.1)
99 Other Exhibits - Re-Offer Prospectus
Item 9. Undertakings.
1. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability the under Securities Act of 1993, each filing of the
Registrant's annual report pursuant to Section 13(a) or Section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that this is incorporated by reference in the
Registration Statement shall be deemed to be a new registration statement
relating to the securities offered herein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
2. The undersigned Registrant hereby undertakes:
(a) To file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
i) To include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
ii) To reflect in the prospectus any facts or events arising
after the effective date of the Registration Statement (or the
most recent post-effective amendment thereof) which, individually
or in the aggregate, represent a fundamental change in the
information set forth in the Registration;
iii) To include any material information with respect to the plan
of distribution not previously disclosed in the Registration
Statement or any material change to such information in the
Registration statement;
provided, however, that paragraphs 2 (a)(1)(i) and 2 (a)(1)(ii) do not apply if
the information required to be included in a post-effective amendment by those
paragraphs is contained in periodic reports filed by the Registrant pursuant to
Section 13 or Section 15(d) of the Securities Exchange Act of 1934 that are
incorporated by reference herein.
3
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(b) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed to be
a new registration statement relating to the securities offered herein, and the
offering of such securities that at that time shall be deemed to be the initial
bona fide offering thereof.
(c) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the termination of
the offering.
3. Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling persons of
the Registrant pursuant to 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 such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Act and will be governed by the final adjudication of
such issue.
4
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SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-8 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the Town of Stony Point, State of New York, on August 27, 1996.
DIPLOMAT CORPORATION
By:/s/SHELDON R. ROSE
---------------------------------------
Sheldon R. Rose
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement on Form S-8 has been signed below by the following
persons in the capacities and on the date indicated.
Signature Capacity in Which Signed Date
- --------- ------------------------ ----
/s/ SHELDON R. ROSE Chief Executive Officer, August 27, 1996
- ------------------------- President, Principal Financial
Sheldon R. Rose Officer, Chairman of the
Board of Directors and a
Director
/s/ STUART A. LEIDERMAN Executive Vice President, August 27, 1996
- ------------------------- Secretary and Director
Stuart A. Leiderman
/s/ ROBERT M. RUBIN Director August 27, 1996
- -------------------------
Robert M. Rubin
/s/ JONATHAN ROSENBERG Director August 27, 1996
- -------------------------
Jonathan Rosenberg
Director
- -------------------------
Edward E. Hinds
/s/ IRWIN ORINGER Controller August 27, 1996
- ------------------------- (Principal Accounting Officer)
Irwin Oringer
5
<PAGE>
EXHIBIT 4
1996 NON-QUALIFIED STOCK OPTION PLAN
1. PURPOSES
The purpose of the Diplomat Corporation 1996 Non-qualified Stock Option
Plan (the "Plan") are to aid Diplomat Corporation, its "subsidiaries" or
"parents" (as defined under the federal securities laws) (together the
"Company") in attracting and retaining highly capable officers, directors,
employees and consultants and to enable selected key employees and consultants
or other representatives of the Company to acquire or increase ownership
interest in the Company on a basis that will encourage them to perform at
increasing levels of effectiveness and use their best efforts to promote the
growth and profitability of the Company. Consistent with these objectives, this
Plan authorizes the granting to selected key employees and consultants of
options to acquire shares of the Company's Common Stock, par value $.0001 per
share ("Common Stock"), pursuant to the terms and conditions hereinafter set
forth.
Options granted hereunder shall be "Nonqualified Options" (which term, as
used herein, shall mean options that are not intended to be Incentive Options
within the meaning of Section 422 of the Internal Revenue Code).
2. EFFECTIVE DATE
This Plan shall become Effective on August 22, 1996, (the "Effective
Date").
3. ADMINISTRATION
(a) This Plan shall be administered by the Board of Directors or a
committee (the "Committee") of the Board of Directors of the Company (the "Board
of Directors"), who are selected by the Board of Directors. All Committee
members shall serve, and may be removed, at the pleasure of the Board of
Directors.
(b) A majority of the members of the Committee (but not less than two)
shall constitute a quorum, and any action taken by a majority of such members
present at any meeting at which a quorum is present, or acts approved in writing
by all such members, shall be the acts of the Committee.
(c) Subject to the other provisions of this Plan, the Committee shall have
full authority to decide the date or dates on which options (the "Options") to
acquire shares of Common Stock will be granted under this Plan (the "Date of
Grant"), to select the persons, key employees, consultants or advisors to whom
the Options will be granted and to determine the number of shares of Common
Stock to be covered by each Option, the price at which such shares may be
purchased upon the exercise of such option (the "Option Exercise Price") and
other terms and conditions of such purchase. In making those determinations, the
Committee shall solicit the recommendations of the President and Chairman of the
Board of the Company and may take into account the key employee's present and
potential contributions to the Company's business and any other factors which
the Committee may deem relevant. Subject to the other provisions of this Plan,
the Committee shall also have full authority to interpret this Plan and any
stock option agreements evidencing Options granted hereunder, to issue rules for
administering this Plan, to change, alter, amend or rescind such rules, and to
make all other determinations necessary or appropriate for the administration of
this Plan. All determinations, interpretations
6
<PAGE>
and constructions made by the Committee pursuant to this Section 3 shall be
final and conclusive. No member of the Board of Directors or the Committee shall
be liable for any action, determination or omission taken or made in good faith
with respect to this Plan or any Option granted hereunder.
4. ELIGIBILITY
Subject to the provisions of Section 7 below, key employees of the Company
(including officers and directors who are employees) and consultants and other
representatives of the Company shall be eligible to receive Options under this
Plan.
5. OPTION SHARES
(a) The shares subject to Options granted under this Plan shall be shares
of Common Stock. If an Option expires, terminates or is otherwise surrendered,
in whole or in part, the shares allocable to the unexercised portion of such
Option shall again become available for grants of Options hereunder. As
determined from time to time by the Board of Directors, the shares available
under this Plan for grants of Options may consist either in whole or in part of
authorized but unissued shares of Common Stock or shares of Common Stock which
have been reacquired by the Company or a subsidiary following original issuance.
(b) The aggregate number of shares of Common Stock as to which Options may
be granted hereunder, as provided in Subsection 5(a) above, the number of shares
covered by each outstanding Option and the Option Exercise Price shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split or other subdivision or
consolidation of shares or other capital adjustment, or the payment of a stock
dividend; provided, however, that any fractional shares resulting from any such
adjustment shall be eliminated.
6. TERMS AND CONDITIONS OF OPTIONS
The Committee may, in its discretion, grant to a key employee only
Incentive Options, only Nonqualified Options, or a combination of both, and each
Option granted shall be clearly identified as to its status. Recipients other
than key employees can only receive Nonqualified Options. Each Option granted
pursuant to this Plan shall be evidenced by a stock option agreement between the
Company and the recipient to whom the option is granted (the "Optionee") in such
form or forms as the Committee, from time to time, shall prescribe, which
agreements need not be identical to each other but shall comply with and be
subject to the following terms and conditions:
(a) Option Exercise Price. The Option Exercise Price at which each share of
Common Stock may be purchased pursuant to an Option shall be determined by the
Committee, except that (i) the Option Exercise Price at which each share of
Common Stock may be purchased pursuant to an Incentive Option shall be not less
than 100% of the fair market value for each such share on the Date of Grant of
such Incentive Option and (ii) the Option Exercise Price at which each share of
Common Stock may be purchased pursuant to a Nonqualified Option shall not be
less than 90% of the fair market value for each share on the Date of Grant of
such Nonqualified Option. Anything contained in this Section 6(a) to the
contrary notwithstanding, in the event that the number of shares of Common Stock
subject to any Option is adjusted pursuant to Section 5(b) above, a
corresponding adjustment shall be made in the Option Exercise Price per share.
7
<PAGE>
(b) Duration of Options. The duration of each Option granted hereunder
shall be determined by the Committee, except that each Nonqualified Option
granted hereunder shall expire and all rights to purchase shares of Common Stock
pursuant thereto shall cease one day before the tenth anniversary of the Date of
Grant of such Option and each Incentive Option granted hereunder shall expire
and all rights to purchase shares of Common Stock pursuant thereto shall cease
one day before the tenth anniversary of the Date of Grant of such Option (in
each case, the "Expiration Date").
(c) Vesting of Options. The vesting of each Option granted hereunder shall
be determined by the Committee. Only such vested portions of Options may be
exercised. Anything contained in this Section 6(c) to the contrary
notwithstanding, an Optionee shall become fully (100%) vested in each of is or
her Options upon his or her termination of employment with the Company or any of
its subsidiaries for reasons of death, disability or retirement. The Committee
shall, n its sole discretion, determine whether or not disability or retirement
has occurred.
(d) Merger, Consolidation, etc. In the event the Company shall, pursuant to
action by its Board of Directors, at any time propose to merge into, consolidate
with, or sell or otherwise transfer all or substantially all of its assets to,
another corporation and provision is not made pursuant to the terms of such
transaction for (i) the assumption by the surviving, resulting from acquiring
corporation of outstanding Options, (ii) the substitution therefor of new
options granting reasonably similar rights and privileges, or (iii) the payment
of cash or other consideration in respect thereof, the Committee shall cause
written notice of the proposed transaction to be given to each Optionee not less
than 30 days prior to the announced anticipated effective date of the proposed
transaction, and the Committee shall specify in such notice a date, which date
shall be not less than 10 days prior to the announced anticipated effective date
of the proposed transaction (the "Vesting Date"), upon which Vesting Date each
Optionee's Options shall become fully (100%) vested. Each Optionee shall have
the right to exercise his or her Options to purchase any or all shares then
subject to such Options during the period commencing on the Vesting Date and
ending at 5:00 p.m. on the day which is two (2) days prior to the announced
anticipated effective date of the proposed transaction. If the transaction is
consummated, each Option, to the extent not previously exercised prior to the
effective date of the transaction, shall terminate on such effective date. If
the transaction is abandoned or otherwise not consummated, then to the extent
that any Option not exercised prior to such abandonment shall have vested solely
by operation of this Section 6(d), such vesting shall be annulled and be of no
further force or effect and the vesting period set forth in Section 6(c) above
shall be reinstituted as of the date of such abandonment.
(e) Exercise of Options. A person entitled to exercise an Option, or any
portion thereof, may exercise it (or such vested portion thereof) in whole at
any time, or in part from time to time, by delivering to the Company at its
principal office, directed to the attention of its Chairman, President or such
other duly elected officer as shall be designated in writing by the Committee to
the Optionee, written notice specifying the number of shares of Common Stock
with respect to which the Option is being exercised, together with payment in
full of the Option Exercise Price for such shares. Such payment shall be made in
cash or by certified check or bank draft to the order of the Company; provided,
however, that the Committee may, in its sole discretion, authorize such payment,
in whole or in part, in any other form, including payment by personal check or
by the exchange of shares of Common Stock of the Company previously acquired by
the person entitled to exercise the Option and having a fair market value on the
date of exercise equal to the price for which the shares of Common Stock may be
purchase pursuant to the Option, or pursuant to a cashless exercise of the
option.
8
<PAGE>
(f) Transferability. Options shall not be transferable other than by will
or the laws of descent and distribution and Option may be exercised by anyone
other than the Optionee; that if the Optionee dies or becomes incapacitated, the
Option may be exercised by his or her estate, legal representative or
beneficiary, as the case may be, subject to all other terms and conditions
contained in this Plan.
(g) Termination of Employment. The following rules shall apply in the event
that an Optionee is an employee of the Company as regards such Optionee's
termination of employment with the Company:
(i) In the event of an Optionee's termination of employment with the
Company either (1) by the Company for Cause (as defined in any relevant
employment agreement to which Optionee is a party) or for fraud, dishonesty,
habitual drunkenness or drug use, or willful disregard of assigned duties by
such Optionee in the absence of such an agreement, or (2) by the Optionee
voluntarily otherwise than at the end of an employment term under a relevant
employment agreement to which Optionee is a party and without the written
consent of the Company, then the Option shall immediately terminate.
(ii) In the event of the Optionee's termination of employment with the
with the Company for reason of retirement or under circumstances other than
those specified in subsection (g)(i) immediately above, and for reasons other
than death or disability, the Option shall terminate three months after the date
of such termination of employment or on the Expiration Date, whichever shall
first occur; provided, however, that if the Optionee dies within such 3-month
period, the time period set forth in subsection (g) (iii) immediately below
shall apply.
(iii) In the event of the death or disability, of the Optionee while
the Optionee is employed by the Company, the Option shall terminate on the first
anniversary of the Optionee's date of termination of employment, or on the
Expiration Date, whichever shall first occur.
(iv) Anything contained in this Section 6 to the contrary
notwithstanding, the Option may only be exercised following the Optionee's
termination of employment with the Company for reasons other than death,
disability or retirement if, and to the extent that, the Option was exercisable
immediately prior to such termination of employment.
(v) The Optionee's transfer of employment between [ ] and its
"subsidiaries" and "parents" (as defined under the federal securities laws)
shall not constitute a termination of employment and the Committee shall
determine in each case whether an authorized leave of absence for military
service or otherwise shall constitute a termination of employment.
(vi) Termination of the Optionee's employment shall not affect the
vesting schedule of the Optionee's Option.
(h) No Rights as Stockholder or to Continued Employment. No Optionee shall
have any rights as a stockholder of the Company with respect to any shares
covered by an Option prior to the date of issuance to such Optionee of the
certificate or certificates for such shares, and neither this Plan nor any
Option granted hereunder shall confer upon an Optionee any right to continuance
of employment by the Company or interferes in any way with the right of the
Company to terminate the employment of such Optionee.
(i) Each stock option agreement shall specify whether the Options
granted thereunder are Incentive Options, Nonqualified Options, or a combination
of both.
9
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7. TEN PERCENT STOCKHOLDERS
The Committee shall not grant an Incentive Option to an individual who
owns, at the time such Incentive Option is granted (directly or by attribution
pursuant to Section 425(d) of the Code), shares of capital stock of the Company
possessing more than 10% of the voting power of all classes of capital stock of
the Company unless, at the time such Incentive Option is granted, the price at
which each share of Common Stock may be purchased pursuant to the Incentive
Option is at least 110% of the fair market value of each such share on the Date
of Grant and such Incentive Option, by its terms, is not exercisable after the
expiration of one year from the Date of Grant.
8. ISSUANCE OF SHARES; RESTRICTIONS
(a) Subject to the conditions and restrictions provided in this Section 8,
the Company shall, within 20 business days after the Option has been duly
exercised in whole or in part, deliver to the person who exercised the Option
one or more certificates, registered in the name of such person, for the number
of shares of Common Stock with respect to which the Option has been exercised.
The Company may legend any stock certificate issued hereunder to reflect any
restrictions provided for in this Section 8.
(b) Unless the shares subject to Options granted under the Plan have been
registered under the Securities Act of 1933, as amended (the "Act") (and, in the
case of any Optionee who may be deemed an "affiliate" of the Company as such
term is defined in Rule 405 under the Act, such shares have been registered
under the Act for resale by the Optionee), or the Company has determined that an
exemption from registration under the Act is available, the Company may require
prior to and as a condition of the issuance of any shares of Common Stock, that
the person exercising an Option hereunder (i) sign such agreements with respect
thereto as the Company may require in any Option Agreement by and between the
Company and the Optionee, and (ii) furnish the Company with a written
representation in a form prescribed by the Committee to the effect that such
person is acquiring such shares solely with a view to investment for his or her
own account and not with a view to the resale or distribution of all or any part
thereof, and that such person will not dispose of any of such shares otherwise
than in accordance with the provisions of Rule 144 under the Act unless and
until either the distribution of such shares is registered under the Act or the
Company is satisfied that an exemption from such registration is available.
(c) Anything contained herein to the contrary notwithstanding, the Company
shall not be obliged to sell or issued any shares of Common Stock pursuant to
the exercise of an Option granted hereunder unless and until the Company is
satisfied that such sale or issuance complies with all applicable provisions of
the Act and all other laws or regulations by which the Company is bound or to
which the Company or such shares are subject.
9. SUBSTITUTE OPTIONS
Anything contained herein to the contrary notwithstanding, Options may, at
the discretion of the Board of Directors, be granted under this Plan in
substitution for options to purchase shares of capital stock of another
corporation which is merged into, consolidated with, or all or a substantial
portion of the property or stock of which is acquired by, the Company or a
subsidiary. The terms, provisions and benefits to Optionees of the Options of
the other corporation on the date of substitution, except that such substitute
Options shall provide for the purchase of shares of Common Stock of the Company
instead of shares of such other corporation.
10
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10. TERM OF THE PLAN
Unless the plan has been sooner terminated pursuant to Section 11 below,
this Plan shall terminate on, and no Options shall be granted after, the tenth
anniversary of the Effective Date. The provisions of this Plan, however, shall
continue thereafter to govern all Options theretofore granted, until the
exercise, expiration or cancellation of such Options.
11. AMENDMENT AND TERMINATION OF PLAN
The Board of Directors at any time may terminate this plan or amend it from
time to time in such respects as it deems desirable; provided, however, that,
without the further approval of the stockholders of the Company, no amendment
shall (i) increase the maximum aggregate number of shares of Common Stock with
respect to which Options may be granted under this Plan, (ii) change the
Eligibility provisions of Section 4 hereof, or (iv) create a "modification" of
any Incentive Stock Options previously granted or otherwise modify the Plan with
respect to the granting of Incentive Stock Options, as those terms are defined
under the Code; and provided, further, that, subject to the provisions of
Section 6 hereof, no termination of or amendment hereto shall adversely affect
the rights of an Optionee or other person holding an option heretofore granted
hereunder without the consent of such Optionee or other person, as the case may
be.
11
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EXHIBIT 5.1
SCHNECK WELTMAN HASHMALL & MISCHEL LLP
1285 Avenue of the Americas
New York, New York 10019
Tel 212-956-1500
Fax 212-956-3252
August 27, 1996
Diplomat Corporation
25 Kay Fries Drive
Stony Point, New York 10980
Re: Diplomat Corporation
Registration of 1,700,000 Shares
of Common Stock on Form S-8
Gentlemen:
We have acted as counsel for Diplomat Corporation, a Delaware corporation
(the "Company"), in connection with the preparation and filing of the
Registration Statement on Form S-8 (the "Registration Statement"), pursuant to
which the Company proposes to registrar 1,700,000 shares of the Company's common
stock, $.0001 par value per share ("Common Stock"). We are familiar with the
proceedings by which the Common Stock has been authorized and issued and have
reviewed and are familiar with the Certificate of Incorporation and the By-laws
of the Company, and such other corporate records and documents as we have deemed
necessary to express the opinion herein stated. We have assumed the genuineness
of all signatures and the authenticity of all documents submitted to us as
originals, the conformity to original documents of all documents submitted to us
as certified or photostatic copies, and the authenticity of the originals of
such latter documents.
Based upon the foregoing, and having regard to legal considerations we deem
relevant, we are of the opinion that the Common Stock has been duly and validly
authorized and when issued by the Company will be fully paid for and
non-assessable.
We hereby consent to the use of this opinion as Exhibit 5(a) to the
Registration Statement and to the inclusion of our name under the section of the
Prospectus entitled "Legal Matters."
Very truly yours,
/s/SCHNECK WELTMAN HASHMALL & MISCHEL LLP
12
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EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We consent to the use in this Registration Statement on Form S-8 for
Diplomat Corporation, of our reports dated April 10, 1996 relating to the
financial statements of Diplomat Corporation as of December 30, 1995 and for the
year then ended, and April 10, 1996, relating to the financial statements of
Biobottoms, Inc. as of January 28, 1996 and for the year then ended and to the
reference to our firm under the caption "Experts" in the Registration Statement
Corporation, and to any reference to us in such Registration Statement.
/s/ Feldman Radin & Co., P.C.
CERTIFIED PUBLIC ACCOUNTANTS
August 27, 1996
13
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EXHIBIT 23.2
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-8 of
our report dated March 17, 1995, except as to note 12 which is as of May 15,
1995 on the financial statements of Biobottoms, Inc., as of January 29, 1995
and for the year then ended which is incorporated by reference and to the
reference to our firm under the heading "Experts" in the prospectus.
/s/ KPMG Peat Marwick LLP
CERTIFIED PUBLIC ACCOUNTANTS
August 29, 1996
14
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EXHIBIT 99
DIPLOMAT CORPORATION
1,700,000 Shares of Common Stock
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND SHOULD
NOT BE PURCHASED BY INVESTORS WHO CANNOT AFFORD THE LOSS OF THEIR ENTIRE
INVESTMENT. SEE "RISK FACTORS," (PAGE ).
---------------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE
SECURITIES COMMISSION NOR HAS THE COMMISSION OR ANY
STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY
OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
This Prospectus relates to 1,700,000 shares of common stock, $.0001 par
value per share (the "Common Stock"), of Diplomat Corporation (the "Company"),
which may be issued pursuant to the Company's 1993 Stock Option Plan, providing
for the grant of up to 200,000 incentive and non-qualified stock options to
purchase shares of Common Stock of the Company, and up to 1,500,000 nonqualified
stock options to purchase shares of Common Stock of the Company pursuant to the
Company's 1996 Non-qualified Stock Option Plan.
Certain holders of options issued pursuant to the 1996 Non-qualified Stock
Option Plan are offering for resale up to 500,000 shares of Common Stock
issuable to them upon exercise of the underlying options (the "Options"). Such
persons are referred to in this Prospectus as the "Selling Stockholders."
Additional shares of Common Stock may become issuable as a result of the
anti-dilution provisions of the Options and are offered hereby pursuant to Rule
416 under the Securities Act of 1933, as amended (the "Securities Act").
The Company will not receive any proceeds from the sale of shares of Common
Stock by the Selling Stockholders, but will receive the exercise prices payable
upon the exercise of the Options. There can be no assurance that all or any part
of the Options will be exercised. All expenses incurred in connection with this
offering are being borne by the Company (which expenses are estimated to be
approximately $30,000), other than any commissions or discounts paid or allowed
by the Selling Stockholders to underwriters, dealers, brokers or agents.
The Selling Stockholders have not advised the Company of any specific plans
for the distribution of the shares of Common Stock being offered by them hereby,
but it is anticipated that such shares of Common Stock may be sold from time to
time in transactions (which may include block transactions) on The Nasdaq Small
Cap Market ("Nasdaq") at the market prices then prevailing. Sales of the shares
of Common Stock may also be made through negotiated transactions or otherwise.
The Selling Stockholders and the brokers and dealers through which the sales of
the shares of Common Stock may be made may be deemed to be "underwriters" within
the meaning set forth in the Securities Act, and their commissions and discounts
and other compensation may be regarded as underwriters' compensation. See "Plan
of Distribution."
The Company has informed the Selling Stockholders that the
anti-manipulative rules under the Securities Exchange Act of 1934, Rules 10b-2,
10b-6 and 10b-7, may apply to their sales in the market and has furnished the
Selling Stockholders with a copy of these rules. The Company has also informed
the Selling Stockholders of the need for delivery of copies of this Prospectus.
The Common Stock is traded in the over-the-counter market and is quoted on
Nasdaq under the symbol DIPL. On August 26, 1996, as reported by Nasdaq, the
closing bid price for the Common Stock was $1.3125 per share.
---------------------------------
The date of this Prospectus is , 1996
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AVAILABLE INFORMATION
The Company is subject to the information requirements of the Securities
Exchange Act of 1934 and in accordance therewith files reports, proxy statements
and other information with the Commission. Reports, Proxy Statements and other
information can be inspected and copies made at the public reference facilities
of the Commission, Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, as well as the following Regional Offices: 7 World Trade
Center, New York, New York, 10007, and Room 1204 Everett McKinley Dirksen
Building, 219 South Dearborn Street, Chicago, Illinois, 60604. Copies can also
be obtained at prescribed rates from the Commission's Public Reference Section,
Judiciary Plaza, 450 Fifth Avenue, N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The Company's Annual Report on Form 10-KSB for its fiscal year ended
December 30, 1995, the Quarterly Reports on Form 10-QSB for the quarters ended
March 31, 1996, and June 30, 1996, the Reports on Form 8-K dated January 9, 1996
and Amendment No. 1 dated May 2, 1996 and the description of the Company's
Common Stock contained in its Form 10-KSB for its fiscal year ended December 30,
1995, all of which have been previously filed with the Commission, are
incorporated in this Prospectus by reference. All documents filed by the Company
pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of
1934 after the date hereof and prior to the termination of the offering made
hereby are also incorporated by reference herein and made a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference herein is modified or superseded for all purposes to
the extent that the statement contained in this Prospectus or in any other
subsequently filed document which is incorporated by reference modifies or
replaces such statement.
The Company will provide without charge to each person, including any
beneficial owner, to whom a copy of this Prospectus is delivered, upon the
written or oral request of such person, a copy of all documents incorporated
herein by reference (not including the exhibits to such documents, unless such
exhibits are specifically incorporated by reference in such documents). Such
requests should be directed to:
Diplomat Corporation
25 Kay Fries Drive
Stony Point, NY 10980
Attention: Mr. Sheldon R. Rose, President
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TABLE OF CONTENTS
THE COMPANY ............................................................... 18
RECENT DEVELOPMENT ........................................................ 19
THE OFFERING .............................................................. 21
RISK FACTORS .............................................................. 22
USE OF PROCEEDS ........................................................... 28
SELLING SECURITYHOLDERS ................................................... 28
PLAN OF DISTRIBUTION ...................................................... 29
LEGAL MATTERS ............................................................. 29
EXPERTS ................................................................... 29
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THE COMPANY
Diplomat Corporation ("Diplomat") designs, develops, markets and
distributes infantwear and care products, nursery accessories and other products
for infant and toddler comfort and care. Through its wholly-owned subsidiary,
Biobottoms, Inc., Diplomat also sells apparel and accessories for newborns
through preteens via mail catalog. As used in this Prospectus, the term
"Company" refers to the businesses of Diplomat and Biobottoms.
Diplomat sells primarily apparel and accessories, cloth diapers, diaper
covers, furniture covers, layette, infant and child travel products, such as
infant car seat covers, and other accessories marketed principally under the
trademarks Ecology Kids,(TM) Lamaze from AMI(TM)/Ecology Kids, and
Biobottoms(TM). These products are marketed primarily in the United States.
While international sales have not been material, Diplomat products are sold in
several Pacific Rim countries (Japan, Singapore, Taiwan and Malaysia). Marketing
efforts to expand sales into Canada and Mexico have not as yet resulted in any
significant sales.
Diplomat is a party to an exclusive distribution agreement (the "Lamaze
Distribution Agreement") with Ambrose & Montgomery, Inc., doing business as
"LAMAZE from AMI" pursuant to which Diplomat was granted the exclusive right to
use the Lamaze(TM) registered trademark in the name "Lamaze from AMI/Ecology
Kids" (the "Lamaze Name") in conjunction with the manufacture, advertisement,
promotion, distribution and sale of various products for infants, including
layette infantwear, care products and reusable diapers (the "Authorized
Products"). Diplomat also plans to establish a direct mail Lamaze Catalog, an
outerwear infant and toddler product line and provide information services on
the Internet, providing a forum for childbirth educators and providing for its
Lamaze product line. AMI received its rights to grant this exclusive
distributorship to Diplomat pursuant to an agreement with the American Society
for Psychoprophylaxis in Obstetrics, Inc. ("ASPO"), the owner of the Lamaze
trademark (the "Contribution Agreement"). The Lamaze Distribution Agreement
requires that Diplomat sell minimum quantities of Authorized Products in each
year. To date, Diplomat has performed all obligations required to be performed
under such Agreement, as amended.
On February 9, 1996, Diplomat completed the acquisition of Biobottoms,
Inc., a California corporation ("Biobottoms"), located in Petaluma, California.
Biobottoms is a children's mail catalog company selling apparel and accessories
in the United States for newborns through preteens. Management of Diplomat
believes that this business combination will strengthen Diplomat's existing
business by joining the manufacturing strength and expertise of Diplomat with
the retailing expertise of Biobottoms.
The primary customers of Diplomat are major mass merchandisers, including
Toys R Us, Inc. ("Toys R Us") and Wal-Mart Stores, Inc. ("Wal-Mart"). The
foregoing two customers represented a total of approximately 58% of Diplomat's
total revenues during the fiscal year ended December 31, 1995. Authorized
Products were initially introduced to the market in Wal-Mart stores. Presently,
one or more of the Authorized Products are carried by Wal-Mart, Toys R Us,
Target Stores and Baby Super Stores, all nationally known merchants. Diplomat's
products are also sold to drug store chains, catalogue showrooms, mail order
catalogues and food store chains.
Historically, Diplomat obtained substantially all of the raw materials
required for the manufacture of its products and shipped such materials to
contract manufacturers, who assembled the products in accordance with Diplomat's
specifications and under its supervision, either from facilities located at
Diplomat's Rockland County,
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New York warehouse and distribution facilities, or other locations in New York
State. Presently, Diplomat has some of its products manufactured in selected
foreign countries, which significantly reduces the use of contract manufacturers
in the United States. Foreign transactions are effected on a fixed price basis
and are denominated in U.S. dollars in order to limit transaction risk relating
to fluctuations in foreign currency. Quality control for finished products
continues to be monitored at Diplomat's principal facilities in Rockland County.
Biobottoms is a leading children's catalog company in the United States
selling apparel and accessories primarily for newborns through preteens. The
majority of the products offered for sale sold by Biobottoms are made of natural
fibers and are designed by Biobottoms with an emphasis on comfort and ease of
care. Biobottoms mailed over 9 million catalogs to its existing and prospective
customers and delivered over $17 million of merchandise in 1995. The catalog is
currently a 56 page four-color catalog offering over 200 products. The catalog
is redesigned four times a year (Fall, Winter, Spring, and Summer) and is mailed
as many as 13 times a year to a combination of customers and prospective
customers. The catalog is divided into product categories, generally by the age
of the child and the size of the products offering. The Biobottoms also operates
a retail store selling overstocks and out-of-season items.
Diplomat was incorporated in Delaware on June 23, 1993, as a wholly-owned
subsidiary of Diplomat Juvenile Corporation, a corporation formed on April 6,
1982 under the laws of the State of New York. Diplomat Juvenile Corporation was
merged into Diplomat on September 2, 1993. Its executive, warehouse,
distribution and production facilities are located at 25 Kay Fries Drive, Stony
Point, New York 10980. Its telephone number is (914) 786-5552.
RECENT DEVELOPMENT
The Company recently issued 500,000 non-qualified stock options in
connection with certain financial consulting services. Each option is
exercisable to purchase one share of Common Stock at any time until January 15,
1997, at an exercise price of $.95 per share. The shares of Common Stock
issuable upon exercise of the Options (together with such shares that may become
issuable as a result of anti-dilution provisions contained in the Options), are
being offered for resale pursuant to this Prospectus.
In connection with the completion of the acquisition of Biobottoms, Inc. in
February 1996, the Company incurred certain acquisition debt payable to the
former Biobottoms stockholders. Of such debt, $750,000 became due and payable on
August 9, 1996 and an additional $375,000 is payable in November 1996 and
$375,000 payable August 1997. The August 9 debt payment was not paid because the
Company lacked sufficient capital resources to make such payment. Such
indebtedness is subject to the terms of a certain intercreditor agreement
between the Company, Congress Financial Corporation ("Congress Financial"), the
Company's institutional lender to Diplomat and Biobottoms, Robert M. Rubin, a
director, principal stockholder and significant creditor of the Company, and
representatives of the former Biobottoms stockholders. This agreement requires
that the payment of the acquisition debt be made out of the proceeds of the sale
of capital stock of the Company.
At the time that the Biobottoms acquisition was completed, additional
equity financing was contemplated to fund the scheduled payments of the
acquisition debt and working capital requirements for the Diplomat and
Biobottoms businesses. Such financing was not secured within the time
constraints contemplated by the management of the Company. As a result, the
acquisition debt was not paid when due. In addition, the Company is experiencing
severe working capital shortages and requires additional capital resources to
fund its existing operations. Under Diplomat's and Biobottoms' lending
facilities with Congress Financial, the Company has borrowed the maximum amounts
available as of the date hereof and there is no unused loan availability. The
Company is pursuing a number of financing alternatives, although there can be no
assurance that such
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efforts will result in necessary financing or that the terms of such financing
will be on terms favorable to existing stockholders. The failure to secure
additional working capital and funds to pay the Biobottoms acquisition debt will
materially adversely affect the business and financial condition of the Company.
Insufficient working capital may require the Company to reduce operations
significantly.
The Company's Lamaze Distribution Agreement expired in July 1996 and its
renewal is presently being negotiated. The Company is continuing to operate
under the terms of the agreement in anticipation of entering into such renewal
agreement in the near future. There can be no assurance that the Company will be
successful in completing the negotiation of such renewal or that the terms
thereof will not be less favorable than those contained in the expired
agreement.
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THE OFFERING
Securities Offered 500,000 shares of Common Stock.
Use of Proceeds The Company will not receive any of the proceeds from
the sale of Common Stock offered by the Selling
Stockholders hereby. Any money received by the
Company upon the exercise of the Options will be
used for working capital purposes.
Risk Factors The securities offered hereby involve a high degree of
risk. See "RISK FACTORS."
Offering Price All or part of the shares of Common Stock
offered hereby may be sold from time to time in
amounts and on terms to be determined by the Selling
Stockholders at the time of sale.
Nasdaq Trading
Symbol DIPL
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RISK FACTORS
THIS OFFERING INVOLVES SUBSTANTIAL INVESTMENT RISK AND COMMON STOCK SHOULD
BE PURCHASED ONLY BY PERSONS WHO CAN AFFORD THE LOSS OF THEIR ENTIRE INVESTMENT.
IN EVALUATING AN INVESTMENT IN THE COMPANY AND ITS BUSINESS PRIOR TO PURCHASE,
PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS AS
WELL AS OTHER INFORMATION SET FORTH ELSEWHERE IN THIS PROSPECTUS:
4. Recent Losses. During the fiscal years ended December 30, 1995 and
December 31, 1994, Diplomat reported net losses of $720,878 and 439,459,
respectively. For the six month period ended June 30, 1996, Diplomat and its
subsidiary (collectively, the "Company") reported a net loss of approximately
$324,000, compared to net income of approximately $453,047 for the comparable
six month period ended June 30, 1995. Significantly lower sales during the
fourth quarter of the fiscal year ended December 30, 1995 and December 30, 1994,
without lower reductions in operating expenses, were principal components for
the losses reported for such periods. There can be no assurance that the Company
will continue to operate profitably in the future.
5. Need for Additional Financing. Diplomat's principal secured commercial
credit facility and that of its wholly-owned subsidiary, Biobottoms, Inc.,
together with funds from operations, do not provide the Company with sufficient
capital resources to fund adequately its working capital obligations and
obligations to pay certain installments due and coming due with respect to the
acquisition of Biobottoms. As of June 30, 1996, the aggregate borrowings by
Diplomat and Biobottoms from its institutional lender was $3,746,918. As of the
date hereof, Diplomat and Biobottoms have borrowed the maximum amounts available
under the terms of the credit facilities. While the Company is pursuing a number
of financing strategies, there can be no assurance that the Company will be
successful in these efforts, the amount of financing secured will be sufficient,
or that the terms will be beneficial to existing stockholders.
6. New and Planned Products. The Company's success depends, in part, upon
the development of strong brand identification for its current and proposed
products. The primary direction of Diplomat's marketing plan is to promote
certain of its existing products and develop new products marketed under the
Lamaze From AMI trademark. Achieving and maintaining market acceptance for its
products will require significant efforts and expenditures. There can be no
assurance that the Company will be successful in effecting this plan.
7. Trademarks and Proprietary Technology. Diplomat's success depends, in
part, upon the development of strong brand identification for its current and
proposed products. Diplomat promotes products using its trademark Ecology Kids
and relies heavily on its rights to utilize the Lamaze name for Authorized
Products in accordance with its distribution agreement with AMI. The rights of
Diplomat under such distribution agreement are derivative of those held by AMI
under its Contribution Agreement with ASPO. In the event that such Contribution
Agreement was terminated, an event not anticipated by Diplomat, Diplomat's
rights under the distribution agreement would also terminate. In such event,
Diplomat would be required either to secure the right to continue the use by
direct agreement with ASPO, a result that cannot be assured, or desist from
continuing use. The inability to use the Lamaze name might have an adverse
effect on the Company. There can be no assurance that others will not infringe
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upon Diplomat's Ecology Kids trademark or that Diplomat can successfully
challenge any alleged infringement. In the event that it became necessary to
establish recognition of alternative trademarks, the cost of such development
could be substantial, and as a result, materially adversely affect the Company's
business and prospects.
8. Possible Adverse Effects of Security Interests in the Company's Assets.
All of the Company's assets (with the exception of its real estate which is also
subject to mortgages), are pledged as collateral to secure the Company's term
loan indebtedness ("Institutional Term Loan") to Congress Financial Corporation
(the "Institutional Lender"), indebtedness to a principal stockholder, and
indebtedness incurred in connection with the acquisition of Biobottoms, Inc.
("Acquisition Debt"), the Company's wholly-owned subsidiary. Unless the security
interests are released, such assets will not be available to secure future
indebtedness, which may adversely affect the Company's ability to borrow in the
future. Moreover, in the event of a default by Diplomat or Biobottoms on their
obligations, including compliance with financial covenants contained in the
credit agreements with the Institutional Lender and in connection with the
Acquisition Debt, such lenders could foreclose on the Company's assets. In
addition, Diplomat's real estate is subject to two mortgage liens; default by
Diplomat with respect to either of such mortgage liens could result in the loss
of Diplomat's real estate and its principal place of business.
9. Possible Conflicts of Interest. As of June 30, 1996, Mr. Robert M.
Rubin, a director and principal shareholder of Diplomat, beneficially owned
1,913,000 shares of common stock, approximately 35% of the issued and
outstanding shares of Common Stock. In connection with Diplomat's Institutional
Term Loan with Congress Financial, Diplomat borrowed from Mr. Rubin, $590,000 on
a secured term loan basis (as to which $300,000 principal amount remains
outstanding). Simultaneously with the closing of the acquisition of Biobottoms,
Inc., Diplomat borrowed an additional $2,353,100 from Mr. Rubin, which principal
amount is outstanding as of the date hereof and subordinated to the
Institutional Lender. Mr. Rubin has also provided Congress Financial with a
limited guaranty not to exceed $375,000 relating to the portion of the Company's
indebtedness based upon borrowings against inventory. There can be no assurance
that Mr. Rubin's relationships with Diplomat and Biobottoms, as both a creditor
and as a principal stockholder and a director of Diplomat, will not give rise to
conflicts with respect to future transactions by the Company. If such conflicts
arise there can be no assurance that they will be resolved in favor of the
Company.
10. Dependence Upon Primary Customers. For the fiscal year ended December
30, 1995, two of Diplomat's customers, Toys R Us and Wal-Mart, individually
accounted for 23% and 36%, respectively, of Diplomat's net sales. For the six
month period ended June 30, 1996, such customers individually accounted for 11%
and 40%, respectively, of Diplomat's sales. Diplomat has no written contracts
with such customers and there can be no assurance that such customers will
continue to purchase products from Diplomat. The loss of either of these
customers could have a materially adverse effect on the Company's business.
11. Substantial Competition. The infant, toddler products and children's
apparel industry segments in which Diplomat and Biobottoms are engaged are
extremely competitive. Diplomat and Biobottoms faces substantial competition in
each of its respective product categories. Diplomat competes in a variety of
segments within these categories, including disposable diapers, cloth diapers,
infant's and juvenile furnishings, infantwear and accessories. Although Diplomat
believes that it can compete favorably in these areas, there can be no assurance
thereof. Diplomat's primary competition in the cloth diaper market is Gerber
Products Company ("Gerber") and Dundee Mills ("Dundee") who collectively
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account for more than 90% of the market for cloth diaper sales not including
cloth diaper service companies. Diplomat believes that it has a market share of
approximately 5%. Diplomat faces additional competition from foreign
manufacturers with respect to cloth diapers. The United States infant disposable
diaper market is led by nationally recognized branded product leaders, Proctor &
Gamble and Kimberly- Clark. In addition, Gerber produces layette and infantwear
products competitive with Diplomat's layette and infantwear products and
produces a diaper cover product which also competes generally with the diaper
covers sold by Diplomat.
There are a wide range of catalogs selling infant and children's apparel in
competition with Biobottoms. These vary from general catalog merchandisers such
as J.C. Penney to smaller specialty children's apparel catalogs. Biobottoms
believes that it competes primarily with the latter which group includes: Hanna
Anderson, Playclothes, Children's Wear Digest, Storybook Heirlooms, Wooden
Soldier, and Land's End Kids. Biobottoms also competes with non-mail order
children's clothing retailers, including specialty stores, department stores,
major chains and discount retailers. Gap Kids, Gymboree and other national
retailers are also competitors outside the direct mail industry.
Many of Diplomat's and Biobottoms' competitors have substantially greater
financial, distribution, marketing and other resources than Diplomat and
Biobottoms and have achieved significant name recognition and goodwill for their
brand names. There can be no assurance that either Diplomat or Biobottoms will
be able to successfully compete with its competitors.
12. Product Liability. Diplomat currently has an aggregate of $2,000,000 of
product liability insurance for its current products with an umbrella policy up
to $3,000,000. Biobottoms maintains product liability coverage of $1,000,000 for
its products. There can be no assurance that these insurance coverages will be
sufficient to cover any liability resulting from any product liability claims or
that Diplomat and Biobottoms would have funds available to pay any claims over
the limit of its insurance. Either an underinsured or an uninsured claim could
have a material adverse effect on the Company.
13. State and Federal Regulation. As a seller of infant and juvenile
products, Diplomat and Biobottoms are subject to laws and regulations
administered by various states and the Federal Trade Commission ("FTC"). As a
seller of bedding products, Diplomat is also required to maintain licenses in
the various states where it conducts business. These licenses subject the
Company to compliance with a variety of laws and regulations regarding the
labelling and cleanliness of its products. In addition, federal and state
regulations designed to protect consumers govern the promotion and advertising
activities of the Company and other sellers of the Company's products and the
mail and catalog operations of Biobottoms. Diplomat and Biobottoms are in
compliance with all laws and regulations where the failure thereof might
materially adversely affect its business or financial condition. Changes in laws
and regulations could materially affect the Company and any costs of compliance
associated with such laws and regulations.
14. Dependence Upon Key Personnel. Sheldon R. Rose, Chief Executive
Officer, President, Chairman of the Board and a director of Diplomat and Stuart
A. Leiderman, Executive Vice President and a director of Diplomat are key
employees of Diplomat and the loss of either of their services could delay the
achievements of Diplomat's goals. Diplomat maintains key man life insurance on
the life of Mr. Rose in the amount of $2,000,000, naming Diplomat as sole
beneficiary.
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15. Control by Current Shareholders, Officers and Directors. Diplomat's
current principal shareholders, directors and officers beneficially own
approximately 58% of the outstanding Common Stock and will be able to exercise
control over the outcome of all matters submitted to the shareholders for
approval, including the election of directors of Diplomat, and as a result will
be able to control Diplomat's affairs and management. Diplomat's articles of
incorporation do not provide shareholders with cumulative voting rights.
16. Outstanding Options and Warrants; Registration Rights. As of the date
of this Prospectus, Diplomat has outstanding 581,175 Class A Warrants and an
underwriter's unit purchase option (the "Option") entitling the holder to
acquire 50,000 Units, each unit consisting of three shares of common stock and
one warrant, that are immediately exercisable. There is also outstanding Class C
Warrant, entitling such holder to acquire in the aggregate 500,000 shares of
common stock upon the full exercise thereof. There is also outstanding Stock
Options entitling the holders thereof to acquire in the aggregate 110,000 shares
of common stock upon full exercise thereunder. In addition, Mr Rubin, a
director, principal stockholder and significant creditor owns 100,000 shares of
the Company's outstanding Preferred Stock, convertible by its terms into
1,000,000 shares of the Company's Common Stock. The Class A Warrants, Option
Class C Warrants, and the shares of Preferred Stock together provide for the
issuance by Diplomat of an aggregate of 2,191,175 shares of Common Stock.
Moreover, the terms upon which the Company may be able to obtain additional
equity capital may be adversely affected since the holders of the outstanding
Options and Options can be expected to exercise them, to the extent they are
able to, at a time when Diplomat would, in all likelihood, be able to obtain any
needed capital on terms more favorable to Diplomat than those provided in the
Options or the Option. The Options, the shares of Common Stock underlying the
Option, and the shares of Common Stock underlying the Preferred Stock and Class
C Warrants are subject to certain demand and/or piggyback registration rights.
Such registration rights could result in substantial expense to the Company and
adversely affect any future equity or debt financing. The sale of Common Stock
or other securities held by or issuable to the holders of registration rights or
merely the potential of such sales, could have an adverse effect on the market
price of the Company's securities.
17. Common Stock Issuable Under Option Plans. Diplomat's Stock Option Plan
provides for the grant of up to 200,000 incentive and non-qualified stock
options to officers, directors, key employees and consultant to the Comapany.
Diplomat also established a non-qualified stock option plan providing for the
issuance of up to 1,500,000 shares common stock to its directors, officers, key
employees and consultants. To date, Diplomat has granted directors, officers and
key employees an aggregate of 105,000 incentive and non-qualified stock ptions,
at an exercise price of $1.50 per share, and 500,000 nonqualified stock options
to consultants of the Company, at an exercise price of $.95 per share. Future
grants could have an adverse affect on the market price of Diplomat's
securities.
18. No Dividends. Since terminating its election to be taxed as an S
Corporation in June 1992, Diplomat has not paid dividends on its Common Stock.
Diplomat intends to retain any future earnings to finance its growth.
Accordingly, any potential investor who anticipates the need for current
dividends from his or her investment should not purchase any of the securities
offered hereby. See "Dividend Policy."
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19. Possible Volatility of Stock Price; Arbitrarily Determined Offering
Price; Arbitrarily Determined Offering Price. There can be no assurance that an
active market in any of Diplomat's securities will be sustained. In the absence
of an active public trading market, an investor may be unable to liquidate his
or her investment. Diplomat believes that factors such as Diplomat's and its
competitors' announcements, including those concerning products, trademarks,
patents, technology and financial results could cause the price of the Common
Stock and Class A Warrants to fluctuate substantially. The original offering
price of the Common Stock and the exercise price and other terms of the Class A
Warrants were established arbitrarily by negotiation between Diplomat and the
Underwriter for the IPO and are not necessarily related to Diplomat's asset
value or net worth or other established criteria of value.
20. Shares Eligible for Future Sale. No assurance can be given as to the
effect, if any, that future sales of Common Stock, will have here on the market
price of Common Stock. Of Diplomat's shares of Common Stock currently
outstanding, 2,250,000 are "restricted securities" as that term is defined in
Rule 144 under the Securities Act of 1933, as amended ("Act"), and under certain
circumstances may be sold without registration pursuant to that rule. Subject to
compliance with the notice and manner of sale requirements of Rule 144 and
provided that Diplomat is current in its reporting obligations under the
Securities Exchange Act of 1934, as amended, a person who beneficially owns
restricted shares for a period of at least two years is entitled to sell, within
any three month period, shares equal to the greater of 1% of the then
outstanding shares of Common Stock, or if the Common Stock is quoted on the
NASDAQ System, the average weekly trading volume of the Common Stock during the
four calendar weeks preceding the filing of the required notice of sale with the
Securities and Exchange Commission. As of the date of this Prospectus, 2,250,000
shares of Common Stock, held by nine beneficial owners, are eligible for sale
pursuant to Rule 144. Diplomat is unable to predict the effect that sales made
under Rule 144 or otherwise may have on the market price of the Common Stock
prevailing at the time of any sales. Nevertheless, sales of substantial amounts
of the restricted shares of Common Stock in the public market could adversely
affect the then prevailing market for the Common Stock and could impair
Diplomat's ability to raise capital through the sale of its equity securities.
21. Possible Delisting and Risk of Low-Priced Securities. The Common Stock
and Class A Warrants are traded in the over-the-counter market and are quoted on
the NASDAQ Small Cap Stock Market ("NASDAQ"). To qualify for continued quotation
or listing of securities, NASDAQ requires satisfaction of certain financial
tests, including the attainment of specified minimum levels of assets, income,
net worth, and certain minimum requirements relating to the market value of the
securities to be listed (exclusive of shares owned by insiders), as well as the
number of shares and stockholders. At a minimum, Diplomat must maintain net
tangible assets of $2 million, stockholder equity of $1 million and have a
minimum bid price of $1 per share. However, there can be no assurance that
Diplomat will be able to satisfy certain other specified financial tests and
market related criteria required for continued quotation on NASDAQ. If Diplomat
is unable to satisfy the NASDAQ maintenance criteria in the future, its Common
Stock and Class A Warrants may be delisted from trading on NASDAQ. Trading, if
any, would thereafter be conducted in the over-the-counter market in the
so-called "pink sheets" or the "Electronic Bulletin Board" of the National
Association of Securities Dealers, Inc. ("NASD"), and consequently an investor
could find it more difficult to dispose of, or to obtain accurate quotations as
to the price of Diplomat's securities.
The Securities Enforcement and Penny Stock Reform Act of 1990 requires
additional disclosure relating to the market for penny stocks in connection with
trades in any stock defined as a penny stock. Commission regulations generally
define a penny stock to include an equity security that has a market price of
less than $5.00 per share, subject to certain exceptions. Such exceptions
include any equity
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<PAGE>
security listed on NASDAQ and any equity security issued by an issuer that has
(i) net tangible assets of at least $2,000,000, if such issuer has been in
continuous operation for three years, (ii) net tangible assets of at least
$5,000,000, if such issuer has been in continuous operation for less than three
years, or (iii) average annual revenue of at least $6,000,000, if such issuer
has been in continuous operation for less than three years. Unless an exception
is available, the regulations require the delivery, prior to any transaction
involving a penny stock, of a disclosure schedule explaining the penny stock
market and the risks association therewith. The broker-dealer must also provide
the customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer, and its salesperson in the transaction, and
monthly account statements showing the market value of each penny stock held in
the customer's account. The bid and offer quotations, and broker-dealer and
salesperson compensation information must be given to the customer orally or in
writing prior to effecting the transaction and must be given in writing before
or with the customer's confirmation. In addition, the penny stock rules require
that prior to a transaction in a penny stock not otherwise exempt from such
rules the broker-dealer must make a special written determination that the penny
stock is a suitable investment for the purchaser and receive the purchaser's
written agreement to the transaction. These disclosure requirements may have the
effect of reducing the level of trading activity in the secondary market for a
stock that becomes subject to the penny stock rules. If Diplomat's securities
become subject to the penny stock rules, investors in this offering may find it
more difficult to sell such securities.
In addition, if Diplomat's securities are not quoted on NASDAQ, or Diplomat
does not have $2,000,000 in net tangible assets, trading in the Common Stock
would be covered by Rule 15g-9 promulgated under the Exchange Act for non-NASDAQ
and non-exchange listed securities. Under such rule, broker/dealers who
recommend such securities to persons other than established customers and
accredited investors must make a special written suitability determination for
the purchaser and receive the purchaser's written agreement to a transaction
prior to sale. Securities also are exempt from this rule if the market price is
at least $5.00 per share.
If Diplomat's securities become subject to the regulations applicable to
penny stocks, the market liquidity for Diplomat's securities could be severely
affected. In such an event, the regulations on penny stocks could limit the
ability of broker/dealers to sell Diplomat's securities and thus the ability of
purchasers of Diplomat's securities to sell their securities in the secondary
market.
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<PAGE>
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of the Common Stock
offered by the Selling Stockholders hereby. Any proceeds realized by the Company
from the exercise of the Options will be used for working capital purposes.
SELLING SECURITYHOLDERS
The Selling Stockholders are offering 500,000 shares of Common Stock for
resale after issuance upon exercise of the Options. Additional shares of Common
Stock that may become issuable as a result of the anti-dilution provisions of
the Options pursuant to Rule 416 under the Securities Act. As of the date
hereof, none of the Options have been exercised.
<TABLE>
<CAPTION>
Beneficial Ownership of Shares Beneficial Ownership of Shares
Selling Stockholder of Common Stock Prior to Sale of Common Stock After Sale
- ------------------- ----------------------------- --------------------------
<S> <C> <C>
Stuart Jacobson 250,000(1) 0
Kenneth Meschetto 250,000(2) 0
</TABLE>
(1) Does not include 500,000 of common stock issuable upon exercise of Class C
Warrants of the Company having an exercise price of $2.50 per share,
expiring July 18, 1997. Mr. Jacobson is the sole director, officer and
stockholder of Boulder Enterprises Inc., the holder of the warrants. Mr.
Jacobson's business address is 140 Euclid Avenue, Suite 4E, Hackensack, NJ.
(2) Mr. Meschetto's business address is 355 Bayville Avenue, Bayville, NY
11709.
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<PAGE>
PLAN OF DISTRIBUTION
The shares offered hereby may be offered and sold from time to time by the
Selling Stockholders, or by pledgees, donees, transferees or other successors in
interest. Such offers and sales may be made from time to time on Nasdaq or
otherwise, at prices and on terms then prevailing or at prices related to the
then-current market price, or in negotiated transactions. The methods by which
the shares may be sold may include, but not be limited to, the following: a
block trade in which the broker or dealer so engaged will attempt to sell the
shares as agent but may position and resell a portion of the block as principal
to facilitate the transaction; (a) purchases by a broker or dealer as principal
and resale by such broker or dealer for its account; an exchange distribution in
accordance with the rules of such exchange; ordinary brokerage transactions and
transactions in which the broker solicits purchasers; privately negotiated
transactions; short sales; and a combination of any such methods of sale. In
effecting sales, brokers or dealers engaged by the Selling Stockholders may
receive commissions or discounts from the Selling Stockholders or from the
purchasers in amounts to be negotiated immediately prior to the sale. The
Selling Stockholders may also sell such shares in accordance with Rule 144 under
the Securities Act.
The Company has agreed to use its best efforts to maintain the
effectiveness of the registration of the shares offered hereby until the earlier
of the date upon which all of the shares offered hereby have been sold or the
date on which the shares offered hereby, in the opinion of counsel, may be
immediately sold by the Selling Stockholders without registration.
The Selling Stockholders and any brokers participating in such sales may be
deemed to be underwriters within the meaning of the Securities Act. There can be
no assurances that the Selling Stockholders will sell any or all of the shares
offered hereby.
The Company is bearing all of the costs relating to the registration of the
shares. Any commissions, discounts or other fees payable to the broker, dealer,
underwriter, agent or market maker in connection with the sale of any of the
shares will be borne by the Selling Stockholders. The Company will not receive
any of the proceeds from this offering, but will receive the exercise price
payable upon the exercise of the Options if they are exercised.
LEGAL MATTERS
The validity of the shares of Common Stock will be passed upon for the
Company by Schneck Weltman Hashmall & Mischel LLP, 1285 Avenue of the Americas,
New York, New York 10019.
EXPERTS
The financial statements and schedules as of January 28, 1996 and for the
year then ended incorporated by reference in this Prospectus and elsewhere in
the Registration Statement have been audited by Feldman Radin & Co., P.C.,
Independent Certified Public Accountants, to the extent indicated in their
reports with respect thereto, and are included herein in reliance upon the
authority of said firms as experts in accounting and auditing in giving said
reports.
The financial statements and schedules of Biobottoms, Inc. as of January
29, 1995 and for the year then ended have been incorporated by reference in
reliance upon the report of KPMG Peat Marwick LLP, independent certified public
accountants, incorporated by reference herein, and upon the authority of said
firm as experts in accounting and auditing.
29
